Sorry to raise this again, but I'm having trouble applying the rules
to my specific situation. I'd welcome some clarity.

I have some BND in my taxable account, my traditional IRA, and my
Roth IRA at Vanguard. (BND is a total US bond fund operated by
Vanguard, and it's an ETF.) In all three accounts, dividends have
been automatically reinvested in fractional shares of the ETF. The
latest dividend was on March 4th, and since then I have changed my
election in all three accounts to take the dividends in cash.

I want to sell all of the BND in my taxable account and have no plans
to buy more. Apart from the reinvested dividends, I bought all of it
in one lump in February 2021. The current share price is less than it
was then.

I'm not a professional trader, just an investor per <https://www.irs.gov/taxtopics/tc429>.

1. I understand that the dividend reinvestment counts as a purchase,
so I have to wait 30 days after March 4th to sell the BND in my
taxable account if I want to avoid a wash sale. Is that right, or do
automatic dividend reinvestments not count as purchases for wash sale
purposes?

2. I plan to sell all of the BND in my taxable account on Monday,
April 4th, after the monthly dividend is paid. Can I switch my IRAs
back to automatic reinvestment, or must I wait 30 days after April
4th if I want to avoid the May 4th dividends in the IRAs creating a
wash sale situation?

3. Am I overthinking this? Do automatic dividend reinvestments in an
IRA actually count as a purchase for wash sale purposes? (Pub 505
implies that they do, since they're an acquisition of shares.)

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

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On Tuesday, March 29, 2022 at 8:11:58 AM UTC-7, Stan Brown wrote:

[snip]
I'm not a professional trader, just an investor per <https://www.irs.gov/taxtopics/tc429>.

I am not a tax professional, just an investor. :-)

1. I understand that the dividend reinvestment counts as a purchase,
so I have to wait 30 days after March 4th to sell the BND in my
taxable account if I want to avoid a wash sale. Is that right, or do automatic dividend reinvestments not count as purchases for wash sale purposes?

Yes, the reinvestments are really two transactions:
a) You are paid a dividend.
b) You (or really the investment company on your behalf) buys more shares.
So it is a purchase.

And a very pernicious one, as typically it is for a relatively small amount and yet triggers all of the wash sale accounting headaches.

2. I plan to sell all of the BND in my taxable account on Monday,
April 4th, after the monthly dividend is paid. Can I switch my IRAs
back to automatic reinvestment, or must I wait 30 days after April
4th if I want to avoid the May 4th dividends in the IRAs creating a
wash sale situation?

The rule is a repurchase within 30 days before or after the sale.
So you need to wait until after May 4th, as April only has 30 days.

But I do wonder why you are trying so hard to precisely time this.
I don't expect that the two months of interest will amount to that
much relative to the bond price. It looks like the yield is less than
3% per year. So I would think you could give yourself a bit more
of a time cushion and then buy more shares (using the cash
dividends) after the wash sale window has passed.
Unless the amount of the dividends is below the minimum
purchase amount. In which case, it is hard to see that it would
really matter in the long term.

3. Am I overthinking this? Do automatic dividend reinvestments in an
IRA actually count as a purchase for wash sale purposes? (Pub 505
implies that they do, since they're an acquisition of shares.)

They do count.

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Thanks for the quick response, Russ. Reactions are below.

On Tue, 29 Mar 2022 18:48:59 EDT, Tom Russ wrote:

On Tuesday, March 29, 2022 at 8:11:58 AM UTC-7, Stan Brown wrote:

1. I understand that the dividend reinvestment counts as a purchase,
so I have to wait 30 days after March 4th to sell the BND in my
taxable account if I want to avoid a wash sale. Is that right, or do automatic dividend reinvestments not count as purchases for wash sale purposes?

[snip]

So it is a purchase.

And a very pernicious one, as typically it is for a relatively small amount and
yet triggers all of the wash sale accounting headaches.

Right -- that's what I want to avoid.

2. I plan to sell all of the BND in my taxable account on Monday,
April 4th, after the monthly dividend is paid. Can I switch my IRAs
back to automatic reinvestment, or must I wait 30 days after April
4th if I want to avoid the May 4th dividends in the IRAs creating a
wash sale situation?

The rule is a repurchase within 30 days before or after the sale.
So you need to wait until after May 4th, as April only has 30 days.

But I do wonder why you are trying so hard to precisely time this.

Not so much "to precisely time" as just a desire to have it over
with. I have low tolerance for unfinished business, so having this
pending until the first week of May is not ideal. But letting myself
in for all the wash-sale accounting would be even less pleasant.

BTW, I need to sell some BND and buy more stock fund as part of
rebalancing because while stocks and bonds have fallen, stocks have
fallen much further. Rebalancing essentially lets me take advantage
of a "sale" on the stock fund.

I don't expect that the two months of interest will amount to that
much relative to the bond price. It looks like the yield is less than
3% per year. So I would think you could give yourself a bit more
of a time cushion and then buy more shares (using the cash
dividends) after the wash sale window has passed.

A time will probably come when I need to buy BND to get back into
balance, but I doubt that time will be before the wash-sale window
ends.

[snip]

3. Am I overthinking this? Do automatic dividend reinvestments in an
IRA actually count as a purchase for wash sale purposes? (Pub 505
implies that they do, since they're an acquisition of shares.)

They do count.

Thanks for confirming.

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

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According to Stan Brown <[email protected]>:

Not so much "to precisely time" as just a desire to have it over
with. I have low tolerance for unfinished business, so having this
pending until the first week of May is not ideal. But letting myself
in for all the wash-sale accounting would be even less pleasant.

If your accounts are held at Vanguard, they will recognize the wash sale and
do the basis adjustments. BTDT.

--
Regards,
John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. https://jl.ly

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You only have a wash sale adjustment for as long as you hold the "substantially identical" stock. Even if you purchased new shares on March 4, as long as you sell ALL your investment in this or "substantially identical" stock (even if at a loss, even if
within 30 days of that purchase), and no longer hold ANY shares of that stock ANYwhere (in taxable or tax-deferred accounts), you do not have any wash sales to worry about (see the definition of wash sales). So if you sell ALL, you can sell on March 5.

Maria U. Ku, CPA
Oakland, CA

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On Thursday, March 31, 2022 at 2:57:20 PM UTC-4, Maria Ku wrote:

You only have a wash sale adjustment for as long as you hold the "substantially identical" stock. Even if you purchased new shares on March 4, as long as you sell ALL your investment in this or "substantially identical" stock (even if at a loss, even

if within 30 days of that purchase), and no longer hold ANY shares of that stock ANYwhere (in taxable or tax-deferred accounts), you do not have any wash sales to worry about (see the definition of wash sales). So if you sell ALL, you can sell on March 5.

Maria U. Ku, CPA
Oakland, CA
--

I think the issue here is that the same security is owned in multiple accounts. Selling all the shares in one account doesn't eliminate the possibility of creating a wash sale through the activity in another account owned by the same individual. Should
the "wash sale" include the acquisition of replacement shares in a retirement account, you lose the loss permanently.

Ira Smilovitz, EA
Leonia, NJ

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Hypothetically, a taxpayer sells 100 shares of an ETF, harvesting a
long-term capital loss. Three weeks later, they receive 2.471 shares
of the same ETF through the brokerage's automatic dividend
reinvestment program.

Does that count as a wash sale in the same way as an intentional
purchase would? And if it does count as a wash sale, does the
investor lose all the tax benefit of the loss on the 100 shares, or
only 2.471% of it to match the shares "purchased"?

--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...

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On Thu, 14 Mar 2024 17:10:16 EDT, Stan Brown
<[email protected]> wrote:

Hypothetically, a taxpayer sells 100 shares of an ETF, harvesting a
long-term capital loss. Three weeks later, they receive 2.471 shares
of the same ETF through the brokerage's automatic dividend
reinvestment program.

Does that count as a wash sale in the same way as an intentional
purchase would?

Yes.

And if it does count as a wash sale, does the
investor lose all the tax benefit of the loss on the 100 shares, or
only 2.471% of it to match the shares "purchased"?

Only the loss on 2.471 shares is disallowed. But the tax
benefit is not permanently lost. It's just deferred. The
disallowed loss is added to the basis of the replacement
shares (the newly purchased 2.471 shares). So it reduces the
gain or increases the loss when those shares are eventually
sold. The tax benefit of the disallowed loss is recovered
when the replacement shares are sold.

You put "purchased" in quotation marks, but it's a real
purchase, like any other. The investor had the option to
take the dividend in cash instead of reinvesting it. The
reinvestment was the investor's decision. It was not
unintentional.

You can find more than you ever wanted to know about wash
sales at the following link.

https://fairmark.com/investment-taxation/capital-gain/wash/

Bob Sandler

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